HONG KONG: The year of the rat, soon to be kicked off after China’s lunar New Year, is lining up to be a strong year for China’s currency and its government bonds.
That’s the bet being put on at Gavekal Capital, a fund manager with about US$1.5bil in stocks and bonds, which says the bonds of the world’s second largest economy will deliver a 10% return this year, given both the strengthening yuan and the relatively high yields in China.
Part of those returns will be driven by the strengthening yuan, which will be stoked by both the easing trade tensions and fallout from the unrest in Hong Kong. The Chinese currency has already climbed about 4% against the dollar after hitting a low in September. Part of the trade deal signed last week in Washington includes commitments by both nations to avoid competitive devaluations.
As the nation also opens up its US$45 trillion market this year and Hong Kong unrest persists, China will take further steps to promote the mainland’s financial centres. Gavekal China Fixed Income Fund returned 4.4% in 2019, according to data compiled by Bloomberg. In the past five years, the fund had an average annual return of 3.6%, beating 80% of its peers.
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